The Dollar Gets a Nice Bounce from Tax Reform—What about Gold?


Dec. 7 2017, Updated 3:00 p.m. ET

The US dollar in 2017

The US dollar (UUP) has fallen consistently in 2017. Factors such as the disappointment over follow through on President Trump’s agenda, the rise in other currencies, and the political uncertainty related to North Korea and Russia led to this steady fall in the dollar.

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Recovery in the US dollar

The dollar has risen recently, as the US Senate passed the Tax Cuts and Jobs Act on December 2, 2017. Tax reform is expected to be beneficial for US corporations, increasing the attractiveness of the US as an investment destination.

As we discussed previously in this series, the Fed is expected to increase interest rates in December. This is also working positively for the US dollar. Apart from inflation, other economic factors are mostly positive, supporting the dollar.

COT report

According to the latest COT (Commitment of Traders) report released on November 28, 2017, large speculators and traders added to their bearish positions on the US dollar for the second consecutive week.

The most recent rally in the dollar was primarily due to the short covering following the passage of the Tax Cuts and Jobs Act in the Senate.

US dollar and gold

The assets denominated in the dollar are influenced by the currency’s movements. Because gold is denominated in the US dollar, its movements are influenced by the currency’s changes.

In turn, gold prices impact equities such as Gold Fields (GFI), B2Gold (BTG), Harmony Gold (HMY), and Alamos Gold (AGI). GFI and BTG comprise 1.8% and 1.4% of the VanEck Vectors Gold Miners ETF’s (GDX) holdings, respectively. HMY and AGI currently don’t form part of GDX’s holdings.


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